Pigovian Tax

The legacy that a society leaves for future generations is always remembered more than the short-term shenanigans that ensued because of shortsighted policies. The baby boom generation's legacy will likely consist of: conflicts with communist nations, the internet, terrorism, Social Security, Medicare and environmental degradation. The last of which might be most damaging and therefore remembered by future generations.

Following U.S. leadership of environmental neglect, the world is experiencing the largest mass extinction in approximately 65 million years, human population is over 6.5 billion -- and exponentially growing -- and the global economy has been incapable of representing sustainable policies.

Carbon as a commodity is an ingenious, yet, extraordinarily complex endeavor that is unlikely to produce the intended results for at least a decade. Until the externalities of pollution can be respected and individuals feel ownership towards environmental degradation, the economy will continue on this unsustainable path. Ironically, the tragedy of the commons could one day represent the legacy of the country that declared war against communism, the U.S.A.

There is no single solution to this problem that has been exacerbated by the children of the 'greatest generation'. Pigovian taxes are likely the best immediate response to curb the enthusiastic consumption by industrialized nations. Greg Mankiw opines that Pigouvian taxes could be the answer to everyone's problems.

The Democrats say they want more environmental protection. The Republicans say they want to make permanent the recent cuts in income, dividend, and estate taxes. Everyone says they want a smaller budget deficit. We can achieve all of these objectives by agreeing to higher Pigovian taxes, such as taxes on gasoline or carbon. The Republicans concede that government revenue will be higher than it is under the President's proposed budget, and the Democrats concede that the President's tax cuts on income, dividends, and estates will be permanent.

The burden of any tax is shared by both buyers and sellers regardless of whom it is levied on. However, the benefits of conserving finite resources using policy will promote sustainable development and healthier living. The comparative advantage of a consumption tax versus a capital tax should be discussed more among economists, politicians and the common citizen. Taxing capital discourages saving whereas taxing consumption does not!